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Help for first-time buyers
Sarah Modlock
01 March 2006
If you are saving up for your first home then you will be painfully aware of the struggle that most young people are facing. As property prices have risen and then settled, it is harder than ever for new buyers to get a foot on the first rung of the property ladder.
Now new research from the Council of Mortgage Lenders (CML) reveals that up to half of all young first-time buyers may be getting help from their parents to fund their deposits. Much of this help may itself be equity from housing - in other words, mum and dad are re-mortgaging their own property to help their offspring buy a home.
The CML's research estimates the level of savings that first-time buyers could reasonably have accumulated, and compares this with their actual deposits. Over the past decade, the proportion of first-time buyers whose deposits were higher than their plausible savings has jumped from under to 10% to nearly 50%.
Which type of first-time buyer are you?
The CML sub-divides first-time buyers into four groups. These are:
• 'Unassisted' first-time buyers aged under 30, using only their own savings to fund a deposit. They tend to have high incomes, but buy properties with low purchase prices. They have low deposits, high percent advances and borrow a medium-level income multiple.
• 'Assisted' first-time buyers aged under 30, with additional funds for a deposit on top of their own savings. They tend to have low incomes, but buy medium-value properties with high deposits and high income multiples, and low percent advances.
• 'True' first-time buyers aged over 30 (whether assisted or unassisted). They tend to have high incomes, high deposits and buy high-value properties. They borrow on medium-level percent advances and income multiples.
• 'Returners' aged over 30, who have previously been home-owners but are classified for survey purposes as first-time buyers because they have taken a break from home-ownership. They tend to have medium-level income, high deposits and low percent advances. They buy high-value properties on medium income multiples.
Essentially, what this shows is that the lending risks first-time buyers present to lenders are very different, depending on which category they fall into. Lenders assess each application on its own merits, to manage the risk in each case.
'For some home-owners, helping out their children with a mortgage deposit may represent an efficient use of funds, in the light of low returns on alternative investments,' says James Tatch, author of the research and senior CML statistician. 'For others, the assistance may not represent an investment decision so much as a case of the family "pulling together" to enable the younger generation into home-ownership. We do not know what effects any of this will have on borrowing patterns in the future,' he explains.
'While older generations are able to raise funds from converted equity and other sources, the assisted route remains a viable option for many young first-time buyers with willing families. But if for whatever reason these sources dry up, the importance of unassisted first-time buyers is likely to increase, and the affordability constraints they face will be brought into sharper focus,' Tatch concludes.
Helping hand
Duncan Pownall, mortgage development manager for Bradford & Bingley is a firm supporter of first-time buyers and the lender offers many helpful options to new borrowers: 'With the ability to move quickly without a long chain, first time buyers are essential to the property market,' he says. 'Many don't realise they are in a strong bargaining position, especially with the softening in the housing market and are failing to negotiate on asking price this means they could be paying literally thousands of pounds more than they need to. They must make the most of their strong position and try and negotiate the best deal for themselves - it may mean they won't have to wait as long or compromise as much on their first home.'
'Homebuying can be quite daunting when doing it for the first time,' adds Pownall. 'So it's vital buyers fully research the market, understand what they can afford and visit a mortgage adviser as soon as possible to talk through the different options available to them. With more and more lenders are responding to their plight and designing specialist, flexible products they may be able to get on the ladder quicker and easier than they first thought. Budgeting and seeking the right advice is therefore key.'
Deals for first-timers
Bradford & Bingley has a wide range of mortgages for first-time buyers. Duncan Pownall suggests these three exclusive deals:
• Lloyds TSB Scotland with a rate of 3.99% - this is set at Bank base rate -0.51% until the end of the this year and then switches to Bank base rate 06 +0.50% until the end of 2007 when the redemption penalty period ends. Finally the rate runs at Base rate +0.75% until the end of 2009). It's available for loans from £50,000 up to 95% of the property's value and has a £199 fee, although this is waived on loans over £100,000. The loan amount can be based on income of one client and one parent.
• Mortgage Express with a rate of 5.54% discounted by 0.96% for 3 years. It is available to 100% loan-to-value, free valuation and £375 arrangement fee. Early redemption charges of 5% in three years.
• Leeds Building Society with a rate of 5.99% discounted 0.51% for 3 years. There is a 3% cash back to a maximum of £3,000 and the loan is available to 90%. There is a £299 arrangement fee and free valuation up to £335. Early redemption charges of 5% apply to the first 3 years.
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